These three segments provide a comprehensive overview of a company's financial performance and position, enabling stakeholders to make informed decisions.

The annual statements will show a shortened version of the financial information. For example, all the assets a company owns, like land, buildings, machines, tools, vehicles, and computers, will be combined and shown as a single item called 'fixed assets' on the balance sheet. To see the details of these fixed assets, you can refer to a separate list called the 'schedule of fixed assets', which is included with the balance sheet. The larger the company, the more detailed lists like this you'll find attached to the balance sheet. 

Accountants also use certain assumptions to calculate some figures. For example, they might assume that some debts will not be paid back and mark them as 'bad debts'. They make these assumptions based on what has happened in the past. They will disclose these assumptions separately in the financial statements under 'notes to accounts'.

Additionally, the chartered accountant may share their opinion on the assumptions made and whether the financial statements accurately represent the company's financial situation. The auditor will also provide their opinion and comments in the audit report.

Besides the three main financial statements (Balance Sheet, Income Statement, and Cash Flow Statement), there are three additional subcategories:

• Schedules to accounts (which are part of the Balance Sheet)

• Notes to accounts (where the accountant explains the assumptions they made)

• Audit report (where the chartered accountant shares their comments and opinion)

Let's now explore these three segments and sub-segments, starting with the Income Statement."

Income Statement 

The income statement is a summary of a company's income (sales, revenues, or turnover) and expenses. The final result shows whether the company made a profit or loss, depending on whether the income is more than the expenses or vice versa. It's important to note that the profit or loss shown is an estimate, not the actual amount of money in the bank. For example, if a company reports a profit of Rs. 100 crores, it doesn't mean they have an extra Rs. 100 crores in their bank account." 

Balance Sheet 

The balance sheet is a summary of a company's financial situation at a specific point in time. It shows three main things:

• Assets: What the company owns (like land, buildings, and equipment)

• Liabilities: What the company owes (like loans and debts)

• Share Capital: The investment made by shareholders

Together, these three segments give investors a clear picture of the company's financial health and what it owns and owes."

Cash Flow Statement 

It's important to remember that 'profit' and 'cash' are not the same thing. A cash flow statement shows the actual cash coming in and going out of a company, and how it is being used. This statement shows how well a company can pay its bills and expenses, which is known as liquidity. Just because a company is making a profit doesn't mean it has a lot of cash on hand. A company can go bankrupt if it runs out of cash, even if it's profitable. That's why a cash flow statement is prepared - to get a clear picture of a company's financial health and its ability to pay its bills. 

Conclusion 

Financial statements provide a snapshot of a company's past performance, but they don't tell us everything. They don't reveal important details like potential risks, and the quality of the company's customers, management, and employees. We also can't assume that the company's past performance will guarantee future success, since future earnings depend on various factors like market trends, inflation, and more.

Despite these limitations, investors rely on financial statements because they believe that a company that has done well in the past is likely to continue performing well in the future.